Navigating the Financial Regulation Compliance Landscape for Financial Service Providers in Israel: An Overview of the Law and Licensing Requirements

Israel’s financial services sector has experienced significant growth in recent years, with the Law on the Supervision of Financial Services (Regulated Financial Services), 2016 (hereafter: “The Law”) playing a crucial role in fostering this growth. This article provides a brief overview of Israel’s regulatory regime for financial services, focusing on the requirements for obtaining a financial services license and the consequences of non-compliance for financial service providers.

The Regulatory Framework: The Law on the Supervision of Financial Services

• Governed by the Insurance and Savings Capital Market Authority Commissioner
• Covers various financial services activities:
  • Credit services
  • Financial asset services
  • Peer-to-peer lending platforms
  • Deposit and credit services associations

Objectives of The Law

• Encouraging the expansion of financial services as an alternative to traditional banking
• Stimulating competition
• Effective oversight and regulation
• Preventing illicit activities within the industry

Applying for a Financial Services License

To obtain a financial services license in Israel, providers must meet specific criteria and comply with various obligations. These requirements are as follows:

1. Minimum equity capital (between 500,000 NIS and 4 million NIS, depending on the type of license)
2. Evidence of honesty and integrity for both individuals and corporations
3. Permits for interested parties and controlling shareholders
4. A well-structured business plan or activity document
5. Sufficient financial means
6. Funding sources for credit providers

Ongoing Duties and Requirements for Financial Service Providers

The Law imposes several ongoing duties and requirements on financial service providers, such as:

• Prohibition of misleading advertising
• Extensive transaction disclosure
• Possibility of requiring written agreements in unregulated areas
• Uniform fee establishment
• Periodic reporting to the Capital Market Authority

Consequences of Non-Compliance

Breaking these rules holds severe consequences, including criminal penalties and fines for:

• Financial service providers
• Their officers
• Controlling shareholders

From a consumer perspective, a violation of the Law results in grounds for a class action against the provider, making strict adherence to the legislation essential.

Updates to the Application Procedure for Financial Services Licenses

The Capital Market Authority recently updated the application procedure for obtaining a financial services license for credit and financial asset providers, involving an extensive evaluation of policies, organizational structure, business plans, financial stability, and consumer protection compliance.

Our Expert Assistance for Financial Service Providers

Our office helps financial service providers navigate the complex regulatory landscape in Israel by handling all required procedures, preparing documents, business plans, and affidavits, planning an appropriate organizational structure, and accompanying clients throughout the licensing process. Our ongoing assistance includes helping clients comply with the Law, contractual systems, and general corporate matters.

More Information on Financing Regulation Compliance in Israel

For more detailed information about financial regulation compliance in Israel, please refer to our presentation: “Navigating the Landscape of Financial Services Regulation in Israel in 2023.” If you have any questions or require further assistance, our experts in financial regulation are always here to help.